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Restoring Rivalry As a Central Concept in Antitrust Law Harry S Nebraska Law Review Volume 75 | Issue 2 Article 2 1996 Restoring Rivalry As a Central Concept in Antitrust Law Harry S. Gerla University of Dayton School of Law Follow this and additional works at: https://digitalcommons.unl.edu/nlr Recommended Citation Harry S. Gerla, Restoring Rivalry As a Central Concept in Antitrust Law, 75 Neb. L. Rev. (1996) Available at: https://digitalcommons.unl.edu/nlr/vol75/iss2/2 This Article is brought to you for free and open access by the Law, College of at DigitalCommons@University of Nebraska - Lincoln. It has been accepted for inclusion in Nebraska Law Review by an authorized administrator of DigitalCommons@University of Nebraska - Lincoln. Harry S. Gerla* Restoring Rivalry As a Central Concept in Antitrust Law TABLE OF CONTENTS I. Introduction .......................................... 209 II. Why Competition Means Rivalry Under the Antitrust Law s ................................................. 211 III. Why Promoting Rivalry Also Promotes Economic Efficiency, Innovation, and World-Class Competitive Industries ............................................ 223 A. Rivalry and the Elimination of X-Inefficiencies ..... 223 B. How Rivalry Helps Spur Innovation and Innovative Effi ciency ......................................... 228 C. How Promoting Rivalry Helps Create Successful World-Class Industries ............................ 233 IV. The Doctrinal Consequences of Taking Rivalry Seriously ............................................. 237 V. Reform and Compromise .............................. 249 A. Reforms-Differentiating Between Injury to Competitors (Rivals) and Injury to Competition (Rivalry)-Adoption of a Concept of De Minimis Injury to Rivalry .................................. 249 B. The Grand Compromise-Giving Economic Efficiency a Co-Equal Role ......................... 251 VI. Conclusion ............................................ 254 I. INTRODUCTION In the fractious realm of antitrust law, one proposition commands nearly universal allegiance-that antitrust laws protect "competi- tion."1 The various statutes which utilize the term "competition" do not define it, nor do most courts applying the federal antitrust stat- * Professor of Law, University of Dayton School of Law, B.A. Queens College, MA. University of Florida, J.D. Ohio State University. The author would like to thank Barbara Ullman Gerla, Esq. for her helpful comments and suggestions. 1. See, e.g., Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 768 n.14 (1984); Brunswick Corp. v. Pueblo Bowl-O-Mat, 429 U.S. 477, 488 (1977); Roy B. Taylor Sales, Inc. v. Hollymatic Corp., 28 F.3d 1379, 1382 (5th Cir. 1994), cert. denied, 115 S. Ct. 779 (1995); Los Angeles Land Co. v. Brunswick Corp., 6 F.3d 209 NEBRASKA LAW REVIEW [Vol. 75:209 utes bother to define the term. 2 Nonetheless, at least until the 1970s, a strong consensus existed among antitrust courts that competition was to be defined by its dictionary meaning of rivalry among firms for the business of consumers.3 Rivalry was, in effect, the monarch of an- titrust concepts. In the 1970s, however, an opposing definition of "competition" emerged. Led by judges and commentators belonging to or influenced by the Chicago School of antitrust law and economics,4 some courts began defining competition not as rivalry, but as "an allo- cation of resources in which economic welfare... is maximized."5 The concept that competition equals economic efficiency rather than rivalry has grown in influence over the past two decades. Many courts have either explicitly or implicitly rejected the notion that com- petition is rivalry and have defined competition solely in terms of eco- nomic efficiency.6 This development is so pronounced that one can fairly conclude that rivalry has been deposed from its regal position in the realm of antitrust law. 1422, 1427 (9th Cir. 1993), cert. denied, 114 S. Ct. 1307 (1995); Abcor Corp. v. AM Intl, Inc., 916 F.2d 924, 931 (4th Cir. 1990). 2. STEPHEN F. Ross, PRINCiPLEs OF ANTITRUST LAw 124 (1992); 1 SECTION OF ANTI- TRUST LAw, Am.BAR ASS'N, ANTITRUST LAw DEVELOPMENTS 42-43 (3d ed. 1992) [hereinafter ANTrrRusT DEVELOPENTS]; Sam D. Johnson & A. Michael Ferrill, Defining Competition: Economic Analysis and Antitrust Decision Making, 36 BAYLOR L. REV. 583, 585-87 (1984). 3. See, e.g., United States v. Union Pac. R.R. Co., 226 U.S. 61, 89 (1912); United States v. Aluminum Co. of Am., 148 F.2d 416, 427 (2d Cir. 1945); Commonwealth Edison Co. v. Allis Chalmers Mfg. Co., 40 F.R.D. 96, 102 (E.D. Ill. 1966); United States v. Koppers Co., 202 F. Supp. 437, 446-47 (W.D. Pa. 1962), appeal dis- missed, 371 U.S. 856 (1962); United States v. Bethlehem Steel Co., 168 F. Supp. 576, 592 (S.D.N.Y. 1958); United States v. United Shoe Mach. Corp., 110 F. Supp. 295, 341 (D. Mass. 1953), affd, 347 U.S. 521 (1954). See infra note 7. 4. The Chicago School of antitrust law and economics emphasizes that allocative efficiency (or, perhaps more accurately, avoiding artificial reductions in output) is the only legitimate goal of the antitrust laws and that neoclassical microeconomic theory (with its assumptions of rational, profit-maximizing producers and con- sumers, the free mobility of capital and labor, relatively free entry into and exit from markets, and the inability of producers who do not possess market power to restrict output or raise prices) is the exclusive source of knowledge on whether an act or practice can reduce output. For an overview of the Chicago School of thought, see generally HERBERT HOvENKAmp, FEDERAL ANTITRUST POLICY: THE LAw OF COMPETITION AND rrs PRACTICE 61-71 (1994); Richard A. Posner, The Chi- cago School of Antitrust Analysis, 127 U. PA. L. REv. 925 (1979). See also Walter Adams & James W. Brock, Antitrust, Ideology, and the Arabesques of Economic Theory, 66 U. COLO. L. REv. 257, 282-93 (1995) (describing Chicago School princi- ples under the rubric of "revisionist antitrust vision"). 5. Roland Mach. Co. v. Dresser Indus., 749 F.2d 380, 395 (7th Cir. 1984). See also General Leaseways, Inc. v. National Truck Rental Leasing Ass'n, 744 F.2d 588, 596 (7th Cir. 1984)("the allocation of resources that maximizes consumer welfare"). 6. See infra notes 149-57 and accompanying text. 1996] RESTORING RIVALRY TO ANTITRUST It is time to restore rivalry to the throne and reestablish it as a central concept in antitrust law. Defining competition in terms of ri- valry is both sound law and sound economics. Rivalry as competition is sound law because principles of statutory interpretation imply that competition means rivalry when that term or concept is utilized in the antitrust statutes. Rivalry as competition is sound economics because contemporary studies indicate that promoting rivalry will increase the internal efficiency of firms, spur innovation, and help develop world- class competitive industries. These developments will, in turn, en- hance (or to use Judge Posner's term "maximize") the economic effi- ciency which the members of the Chicago School and their fellow travelers hold so dear. Rivalry cannot, however, be restored to prominence under the same terms and conditions which prevailed before it was displaced. A restored rivalry standard must avoid the past excesses (which, in part, may have been responsible for its ouster) and must accommodate it- self to new political realities. First, not every injury to rivals should automatically be equated with an injury to rivalry. Second, not every minor or de minimis injury to rivalry itself should give rise to a cause of action under the federal antitrust laws. Third, those who empha- size the centrality of rivalry in the antitrust laws cannot ignore effi- ciency concerns, even when such concerns do not necessarily enhance rivalry. Part II of this Article is devoted to an exploration of why, as a mat- ter of statutory interpretation, competition under the antitrust laws should be defined as rivalry. Part III of the Article discusses why fo- cusing the antitrust laws on the rivalry standard will lead to increases in productive and innovative efficiency which are so necessary for long-term success in an increasingly globalized and technologically driven economy. Part IV of this Article contains a discussion of some of the changes in modern antitrust doctrine which will be wrought by a renewed fo- cus on using the antitrust laws to promote rivalry. Finally, Part V of the Article will discuss the doctrinal changes and accommodations which must be made if rivalry is to remain a viable central organizing concept in antitrust law. II. WHY COMPETITION MEANS RIVALRY UNDER THE ANTITRUST LAWS Those who claim that competition under the antitrust laws means something other than rivalry have a heavy burden of proof to bear. First, the dictionary definitions of competition all equate competition NEBRASKA LAW REVIEW [Vol. 75:209 with rivalry. 7 However, as Professor Kaplow points out, this does not decide the issue.8 But, as he also points out, none of the dictionary definitions contemplate economic efficiency as a meaning of competition. 9 Second, competition is defined as rivalry in common usage.lO The tendency to equate rivalry with competition is so strong that even Judge Frank Easterbrook, a vigorous proponent of defining competi- tion as efficiency, cannot avoid the tendency. In his dissenting opinion in Fishman v. Estate of Wirtz,"1 Judge Easterbrook made the point that competition is efficiency, not "moment to moment rivalry."12 Yet, in the very next sentence of his opinion Judge Easterbrook writes that "[r]eal competition is bruising rivalry."13 Such is the tenacity of com- petition as rivalry in common usage.14 Third, and perhaps most important, for eighty years courts either explicitly or implicitly defined competition under the antitrust laws as rivalry.35 Eighty years of consistent definitional precedent should not be overturned without a compelling reason, and no such compelling reason exists. Nothing in the legislative history of any of the federal antitrust laws compels the conclusion that competition ought to mean economic efficiency rather than rivalry.
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